Obama and crew on economy...No clue!

Romer: We had no clue â¦ and still donât
POSTED AT 10:12 AM ON SEPTEMBER 2, 2010 BY ED MORRISSEY

Christina Romer exits the administration this month, and perhaps she felt compelled to engage in a little truth telling. If so, that may have been a little more truth than the people at the National Press Club, who had gathered to hear her valediction as chair of the White House Council of Economic Advisers, had prepared themselves to handle. Dana Milbank describes how depressing it was to the gathered media to have someone on the inside of the Obama administration tell them that the emperor and his staff have no clothes when it comes to the economy:

She had no idea how bad the economic collapse would be. She still doesnât understand exactly why it was so bad. The response to the collapse was inadequate. And she doesnât have much of an idea about how to fix things.

Just how bad was it? Romer admitted that no one at the White House understood the fundamentals of this recession, and how they just assumed it would behave like previous recessions. And it might have done so, had the Obama administration applied the policies that alleviated previous recessions, especially those that Ronald Reagan used to pull the US out of a decade-long stagnation slump where high inflation eroded the buying power of Americans. Instead of cutting taxes (especially capital gains taxes) and reducing regulation to entice new investment, Barack Obama and Congressional Democrats chose to chase a government takeover of health care, a massive tax on energy production that would penalize expansion and growth, and expanding the jurisdiction on Wall Street of the same agencies that had watched the collapse come and did nothing about it.

Romer, however, still hasnât got a clue why a one-time expenditure of government funds didnât make things hunky-dory:

Even now, Romer said, mystery persists. âTo this day, economists donât fully understand why firms cut production as much as they did or why they cut labor so much more than they normally would.â Her defense was that âalmost all analysts were surprised by the violent reaction.â

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âAlmost all analystsâ? Only those who work in the White House. No one doubts the magnitude of the recession, but thatâs only part of the story today, and a rapidly diminishing part at that. The wealth that got destroyed in the bubble collapse has already gone, but there is still plenty of capital left to get the engine of wealth creation primed and pumping again. The âviolent reactionâ came to the radical Democratic agenda of government expansion and massive deficits, which is why the normal post-World War II pattern of recovery hasnât appeared in this instance, and most likely wonât until a new Congress arrives to force the administration into a different, pro-growth direction.

Romer bristles at the perception that she and Obama miscalculated the response, but as Milbank notes, her defense is rather pathetic. Why, she performed quantitative estimates!

No wonder most Americans think the effort failed. But Romer argued, a bit too defensively, against the majority perception. âAs the Council of Economic Advisers has documented in a series of reports to Congress, there is widespread agreement that the act is broadly on track,â she declared. Further, she argued, âI will never regret trying to put analysis and quantitative estimates behind our policy recommendations.â

But the problem is not that Romer did a quantitative analysis; the problem is that the quantitative analysis was wrong. Inevitably, this meant that, as she acknowledged, âthe turnaround has been insufficient.â

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And itâs not just that, either; itâs also that the White House ignored a long track record of the successful and unsuccessful strategies in dealing with recessions over the last several decades. When Keynesianism has been tried, it has failed and instead ushered in stagnation and economic drift. When tax cuts and streamlining have been implemented, expansion and job growth followed. This administration somehow believed it could reinvent economics so that it performed just like it does in the laboratories of the Ivory Tower, where their top-down, command-economy projects always succeed. As Romer admits, to the consternation of the media that failed to vet Barack Obama and his policies as a candidate, is that no one in the White House has a Plan B.

"To the eight million Americans who have lost their jobs during the âGreat Recession,â the so-called recovery our nation is currently experiencing hasnât been very âstimulating.â

In fact itâs been downright depressing â and conditions are not likely to improve anytime soon.

With virtually all economic indicators retreating and a barrage of job-killing tax hikes scheduled to take effect in 2011, a dreaded âdouble-dipâ recession is imminent â despite repeated assurances to the contrary from the administration of President Barack Obama. Also with trillions of taxpayer dollars still being spent, lent, pledged and printed in the name of supporting this phantom ârecovery,â government continues to amass a debt so large that its interest payments alone will consume more than a third of federal income tax revenue by 2015.

Far from preventing an economic collapse, the costly federal interventionist policies of Obama and former President George W. Bush have sown the seeds for a larger, longer economic downturn â mirroring the failed âgovernment-firstâ approach of the 1930s that managed to turn a recession into full-blown depression.

Just as government cannot tax and spend its way out of bad economic times (then or now), the Obama administration is discovering that it canât talk its way out of them either â although that hasnât stopped the authors of âObamanomicsâ from attempting to do so.

A year ago U.S. Federal Reserve Chairman Ben Bernanke declared that the U.S. recession was over â a sentiment that was echoed by Obamaâs top economic advisor in December of 2009. In April of this year, Obamaâs other top economist said that there would be no âdouble-dipâ recession, comments which prompted a flurry of rosy rhetoric from the White House.

âWe can say beyond a shadow of a doubt today we are headed in the right direction,â Obama said during a speech back in May. âAll those tough steps we took, theyâre working, despite all the naysayers who were predicting failure a year ago.â

Around this time, U.S. Vice President Joe Biden also predicted a âSummer of Recoveryâ in which the U.S. economy would create âbetween 250,000 jobs a month and 500,000 jobs a month.â

Clearly, that hasnât happened â nor is it going to happen.

The official U.S. unemployment rate remains stuck at just under 10 percent, while the broader âunderemployment rateâ is stuck at 16.5 percent. Neither rate has moved for months, although both are about to start moving again â albeit in the wrong direction.

Last month, the U.S. economic growth rate for the second quarter was revised downward from 2.4 percent to 1.6 percent â with roughly the same anemic rate of growth predicted for the third quarter. Meanwhile existing home sales plunged by 27.2 percent â the largest one-month decline ever â and new home sales fell by 12.4 percent to their lowest level ever.

Just as it did in 1929, the U.S. government is on the verge of turning a recession into a depression by virtue of its costly excess interventionism. In 1930, a year after the stock market collapsed, the U.S. unemployment rate stood at 8.7 percent. In 1932 â after an ill-conceived government tariff, massive public works program and the largest tax hike in American history â the unemployment rate had nearly tripled to 23.6 percent. Six years later â after the implementation of Franklin Rooseveltâs âNew Dealâ â it was still at 19 percent.

Also, letâs not forget governmentâs starring role in the years leading up to this crisis â a decade of overspending and politically-correct lending practices that pumped trillions of dollars into mortgages for people who simply couldnât afford them.

Amazingly Obama and his allies still cannot read the handwriting on the wall, as just a few weeks ago Vice-President Biden reiterated that there was âno doubt weâre moving in the right directionâ economically.

Despite the rhetoric of ârecovery,â Americaâs economic hole is clearly getting deeper â and the only way out is a return to the free market, limited government principles on which our nation was founded.

Letâs hope our elected officials realize that before it is too late.."

And when Wall Street goes and pays itself ANOTHER record bonus at the end of this year you can bet that Obama and the acolytes will resurrect that tired mantra about how "you all are suffering and THEY just don't get it" demagoguery that has defined this administration since Jan 21, 2009.

"In our book 2010: Take Back America - A Battle Plan, we write: "The prospect we now face is not the intermittent up-and-down fluctuations of unemployment we have had since the Great Depression. Thanks to Obama's policies, we're confronting the possibility of an unemployment rate that never comes down, just as they have in Europe. If we stay on Obama's course, lower joblessness in the United States will be a thing of the past."

The recent rise in unemployment back up to 9.6% and the loss of 54,000 jobs in August, suggests that our prediction is - dismally - coming true.

The Obama stimulus plan has finally kicked in: The higher spending he brought to our nation and the debt levels that are accompanying it are the result.

Why is unemployment remaining so high? Because the totality of Obama's policies are dragging us into a depression.

â¢ The prospect of dramatically higher taxes next year is freezing consumer spending, particularly in the upper income ranges which spend a third of America's consumption.

â¢ The huge changes that are looming in medical care brought about by Obama's health care legislation are freezing new employment and expansion in the medical sector which accounts for 16% of GDP.

â¢ The financial reform legislation has so raised the prospect of a federal takeover of any bank that makes "imprudent" loans that financial institutions are afraid to lend, freezing new job creation.

â¢ The looming possibility of cap-and-tax legislation in the name of halting climate change is freezing any expansion in the manufacturing and energy sectors since these policies will force jobs to move overseas to locations that do not impose such a tax (e.g. India and China).

â¢ The massive expansion in the deficit and in the resulting debt has so eroded confidence in our nation's future that Americans are now saving 6% of their income, up from 1% in the past, sapping consumer spending.

â¢ The threat of new rules for union elections that will spread private sector unionization is freezing business expansion plans.

Obama's rush to spend, regulate, re-engineer, redistribute, and tax have stopped any recovery and are sending us back into recession. In her wonderful book The Forgotten Man, Amity Shlaes notes how FDR's policies in the late 1930s did the same thing. She notes how the imposition of the Social Security tax in 1937 (benefits did not start until 1941) and the rapid wage hikes that accompanied the passage of the Wagner Act (steel worker wages rose 40% in 1937) sent a recovering nation back into a new depression that lasted until the war started in 1939.

In his haste to re-make America and to bring us the "fundamental change" he promised as he campaigned for president in 2008, Obama has torpedoed the recovery and sent us back into a double dip recession.

The answer is to cut spending back to pre-Obama levels, reduce taxes and eliminate the threat of tax increases, zero fund the changes Obama has legislated in health care (and repeal them in 2013), eliminate the threat of cap-and-tax, and lay the basis for solid economic growth.

We have left the recession that started in 2007 and entered a new recession caused by Obama's policies."